Wayland Voters Network issue 485 presents a useful discussion of non-exempt versus exempt borrowing ... but makes one important error in doing so (emphasis below added).

Quote Originally Posted by Wayland Voters Network #485
Non-Exempt or Exempt Borrowing?

At a FinCom meeting and again at the presentation the FinCom made to the selectmen on Feb. 11, arguments were presented for exempt borrowing for the DPW building. The principal and interest that taxpayers pay each year to pay off the loan is the same whether it is non-exempt or exempt borrowing. However, the voting schedule for possible future operational budget overrides would be affected by the choice.

FinCom policy is to fund major building projects like the new High School and the proposed DPW building by debt that is exempt from the state's Proposition 2-1/2 tax increase limit.

If the DPW building is funded by exempt borrowing, the resulting debt service over the years is not considered when calculating whether an operational override is needed. Any amount of debt service for exempt borrowing is allowed each year without affecting the need for an operational override because it raises the levy capacity for the duration of the debt.

Proposition 2-1/2 is based on the limit of the town's total tax levy. The levy limit goes up by 2-1/2% of the previous year's levy limit plus an allowance for new growth. Then the amount which can be taxed (the levy capacity) is the new levy limit plus any exempt debt service.

In the current fiscal year, 2013, tax revenue was more than $11 million under our town's levy capacity. (One reason for this was the use of a large amount of free cash to lessen the tax revenue.) Predictions for FY14 assume tax revenue will still be more than $6 million below levy capacity. Thus Wayland will not require an operational override for FY14. In FY15, the debt service for the DPW building will be added to tax revenue, but if it is exempt, the debt service is also added to our levy capacity.

However, if we fund by non-exempt borrowing, the debt service is not added to our levy capacity. Our tax revenue gets closer to our levy capacity. Then, since it is anticipated that the operating budget will grow faster than 2-1/2% per year on average, there will be more of a constraint on future spending and voters will be asked for an operational override sooner.
WVN writes, "One reason for [Wayland being $11 million under our town's levy capacity] was the use of a large amount of free cash to lessen tax revenue." This assertion is incorrect (unintentionally so, I'm guessing--it's a somewhat complex issue).

The Free Cash that recently reduced CURRENT tax revenue came from PRIOR tax revenue. As a result, the raising of that Free Cash in the past brought us CLOSER TO the Levy Limit back when it was raised. Its use more recently to avoid the raising of new revenue simply moved us back away from the Levy Limit to where we would have been had we never raised it at all.

Put simply, the raising/spending, raising/holding, or raising/returning of Free Cash does NOT move us further "under our town's levy capacity"--it can only move us closer to that Levy Limit (in the raising/spending or raising/holding cases).